taxes seem wrong - $640 owed on $3250 income...

[nereo]

Hoping someone can give me an idea of whether this is actually plausible or if I did something wrong.

relevant info:
using HR Block free-file software
Married, filing jointly
Permanent resident of a foreign country (bona-fide)
Form 2555 (foreign income exclusion) = $29800 (so no taxes paid there to IRS)

Self-employment income (1099-MISC) = $3,250
1099-DIV = $1,528
1099-INT = $49
Roth-IRA Contribution = $3020 *

Standard deduction taken ($12,600)
Zero tax credits taken

Total owed: $640

1) how can this be right, when my standard deduction is >> than income + capitol gains
2) why does HR block keep saying I can only contribute $3020 to my roth IRA when I earned (and reported) $3,250 (from my 1099-MISC).  Shouldn't it be $3,250?

[FIPurpose]

Hoping someone can give me an idea of whether this is actually plausible or if I did something wrong.

relevant info:
using HR Block free-file software
Married, filing jointly
Permanent resident of a foreign country (bona-fide)
Form 2555 (foreign income exclusion) = $29800 (so no taxes paid there to IRS)

Self-employment income (1099-MISC) = $3,250
1099-DIV = $1,528
1099-INT = $49
Roth-IRA Contribution = $3020 *

Standard deduction taken ($12,600)
Zero tax credits taken

Total owed: $640

1) how can this be right, when my standard deduction is >> than income + capitol gains
2) why does HR block keep saying I can only contribute $3020 to my roth IRA when I earned (and reported) $3,250 (from my 1099-MISC).  Shouldn't it be $3,250?

Answer to number 2: You can't contribute to a Roth IRA for the  "employer" side of your self-employment tax ie 6.2%

[dandarc]

Self employment tax probably makes up the bulk of it.

Wonder if there is some penalty / tax on the excess Roth contribution?  Usually you can correct that without penalty if you do it yourself.

[FIPurpose]

Self employment tax probably makes up the bulk of it.

Wonder if there is some penalty / tax on the excess Roth contribution?  Usually you can correct that without penalty if you do it yourself.

Yeah atleast on your self-employment income you can't deduct away self-employment tax which on your $3250 is $403. Still trying to think of where the other $240 is coming from. What kind of income is your DIV and INT?

There is a penalty that is correctable but it's small. It's like 6% on everything you over contributed. So like $15-$20 worth of tax.

[nereo]

Self employment tax probably makes up the bulk of it.

Wonder if there is some penalty / tax on the excess Roth contribution?  Usually you can correct that without penalty if you do it yourself.

Yeah atleast on your self-employment income you can't deduct away self-employment tax which on your $3250 is $403. Still trying to think of where the other $240 is coming from. What kind of income is your DIV and INT?

There is a penalty that is correctable but it's small. It's like 6% on everything you over contributed. So like $15-$20 worth of tax.

Thanks - this is helping me work through it.
It seems the self-employment tax is $459 (15.3% of income, which for some reason is calculated as 92.35% of what's listed on my 1099-MISC (so $3,250 x 0.9235 x 0.153)
Fair enough.

The DIV and INT are LT-CG on investments (index funds) and bank account interest.

I need to re-characterize my roth contribution down from $3250 to $3020; HR says there's a 6% penalty but its also listing a total penalty of $180 (!)  that seems wrong.  Did not realize that my max contribution for self-employment was -6.2% (the employer side).  Live and learn.

[dandarc]

Yeah that math on the self-employment tax is correct.  It equalizes (roughly) with a standard employee.

Standard employee is taxed on pay *7.65%.  Employer pays pay *7.65%.

Since you're self-employed, you're both halves.  The 92.35% gets you down to about what you'd have as a standard employee.  Then 15.3 is just 7.65% * 2 to get both halves in 1 shot.

[nereo]

Yeah that math on the self-employment tax is correct.  It equalizes (roughly) with a standard employee.

Standard employee is taxed on pay *7.65%.  Employer pays pay *7.65%.

Since you're self-employed, you're both halves.  The 92.35% gets you down to about what you'd have as a standard employee.  Then 15.3 is just 7.65% * 2 to get both halves in 1 shot.

Understood, thanks for the explanation.  I've never had self-employment income before so this is all a learning experience for me.

I just adjusted my over-contribution on my IRA.  Depending on where the market is exactly when its executed I could pay a 10% penalty on the earnings (~1%) from that $200... so.... I'm I might lose 20¢ on my error.  I can live with that.

[FIPurpose]

Yeah that math on the self-employment tax is correct.  It equalizes (roughly) with a standard employee.

Standard employee is taxed on pay *7.65%.  Employer pays pay *7.65%.

Since you're self-employed, you're both halves.  The 92.35% gets you down to about what you'd have as a standard employee.  Then 15.3 is just 7.65% * 2 to get both halves in 1 shot.

Understood, thanks for the explanation.  I've never had self-employment income before so this is all a learning experience for me.

I just adjusted my over-contribution on my IRA.  Depending on where the market is exactly when its executed I could pay a 10% penalty on the earnings (~1%) from that $200... so.... I'm I might lose 20¢ on my error.  I can live with that.

If you did a recharacterization through Vanguard, they should do their best to also recharacterize losses/gains. You shouldn't have to do any tricky math on that part.